The Export Led-Growth and FDI Led-Growth Nexus in Malaysia: Evidence from ARDL Analysis

This paper investigates the relationship between foreign direct investment (FDI) and export (X) towards Malaysia’s economic growth over the period 1980 to 2011. Most past empirical studies observed that both FDI and export are the important sources of economic growth especially after the country’s liberalization in 1986. The interest of this paper is to find out which determinant contributes higher for the growth by applying recent time series analysis known as Autoregressive Distributive Lag (ARDL) approach proposed by Pesaran (2001) by modifying the standard Cobb Douglas production function. The results confirmed that determinant; FDI and export are positively correlated with higher growth and will be converge in the long run. Based on the contribution, export is proven to contribute more than FDI for the growth of Malaysian economy. The outcome of this analysis can give important insight to the policymaker so that Malaysia will not lose track in competing with other rising Asian countries. The lack of FDI and income received from export activities may constrain to economic growth and vice versa.